Sparx Wins Government Mandate to Start Renewable Energy Fund

June 28 (Bloomberg) -- Sparx Group Co., a Japanese asset
manager, will start an infrastructure fund after winning a
contract from the Tokyo Metropolitan Government to invest in the
nation’s renewable energy industry.

The fund will start with initial capital of 1.5 billion yen
($19 million) from the government as early as October and will
expand to about 20 billion yen, Chief Executive Officer Shuhei
Abe said. The fund will mainly invest in projects including
mega-solar and wind-power plants in Japan, and may also invest
as much as 15 percent of assets in shares of smart-grid
technology companies, he said.

Sparx runs a fund that invests in Japanese companies in the
smart-grid and renewable-energy technology industries amid
Japan’s efforts to cut dependence on atomic energy that provided
about 30 percent of the nation’s power before the Fukushima
nuclear meltdown in March 2011. The Tokyo government sought
companies able to manage a public-private infrastructure fund
dedicated to investing in the country’s power-supply business,
the nation’s first such fund, according to Abe.

“This is going to be a big push for the expansion of our
fund business,” Abe said in an interview in Tokyo. “The
renewable energy industry is lacking capital it needs to
contribute to securing sustainable energy in Japan and we want
to be the initial risk taker in providing the financing.”

The mandate comes as Abe tries to bring his company back to
profitability by widening its offerings beyond equity-related
products, including hotel and real estate funds. Sparx posted a
net loss of 4.54 billion yen for last fiscal year, compared with
a 3.7 billion yen loss a year earlier, even after it cut
salaries and relocated to less expensive offices in Tokyo.

Raising Funds

The infrastructure fund will target an annual return of 6
percent to 8 percent, while it will last about 15 years, Abe
said. Sparx plans to raise capital for the fund from domestic
and overseas pensions, individual investors as well as sovereign
wealth funds around the world, Abe said.

Sparx’s smart-grid fund, with more than 20 billion yen in
assets, has declined 4.2 percent since July 2010 through the end
of May, outperforming the 14 percent drop by the benchmark Topix
index in the same period, according to the company.

The Tokyo city fund will focus on the Tokyo metropolitan
area for investments, while it will seek opportunities across
Japan as well in alternative energy providers such as those in
the solar- power industry and wind-power generators, Abe said.

The Tokyo Metropolitan Government became the largest
shareholder in Tokyo Electric Power Co. at the end of March
following partial stake sales by two life insurance companies,
according to the utility’s website.

Replacing Nuclear

Japan’s government in April recommended solar power
providers earn 42 yen a kilowatt-hour for the electricity they
produce, three times the 13.65 yen charged to industrial and
commercial users, according to the Ministry of Economy, Trade
and Industry. The preferential rate, known as a feed-in tariff,
for solar power, was recommended for 20 years.

To replace one nuclear plant in Japan, about 2 trillion yen
of capital is needed, according to Abe. All of Japan’s 50
reactors were taken offline for safety checks after the
meltdowns at Tepco’s Fukushima Dai-Ichi reactors last year, with
only two near the western city of Osaka given permission to
resume operations since.

“Japan’s energy policy has changed drastically post
Fukushima,” Abe said. “Alternative energy has been argued to
be costly, but with the introduction of the feed-in-tariff in
July, the industry will grow eventually and the fact that a
company like Sparx can be a part of it along with the government
is quite significant for us.”